Key Takeaways From Tata Motors Q2 As JLR Profitability Sinks

Tata Motors (NYSE: TTM) released its Q2’19 results on October 31, 2018, and conducted a conference call with analysts the same day. The company posted a rise of 3.3% in sales revenue, driven by higher volume sales in its domestic market. EBIT margins stand at 1.7%, quite lower than the last year figures, largely due to China’s deteriorating market for the company and a loss in its JLR division. Jaguar Land Rover (JLR) experienced an 11% decline in its sales revenue as compared to the same period last year because of extreme volatile market conditions, particularly in China. However, the company’s domestic brand TML (Tata Motors Limited) witnessed substantial growth, with wholesales volume up by 25% in this quarter.

We have a $19 price estimate for the company, which is higher than the current market price. View our interactive dashboard – Our Outlook For Tata Motors In FY19 – and modify the key assumptions/forecasts to arrive at a price estimate of your own.

Key Highlights From Q3

H1’19 sales for Tata Motors Limited (TML) stand at 367,149 units, out of which, the domestic brand sold 190,283 units in the second quarter. This represents a 25% growth in sales volume in its domestic market. Tata Motors’ domestic business continued to deliver a strong improvement in operational and financial performance by implementing the Turnaround 2.0 strategy effectively. The company has managed to increase its market share while delivering robust improvement in profitability in both the commercial vehicle and passenger vehicles, thus in turn, generating positive free cash flows. Further, the company expects to increase its market share in the face of an intensely competitive market. The company is well positioned to capture market trends and is looking forward to better profitability returns in commercial and passenger vehicle segment.

Alternatively, Jaguar Land Rover (JLR) H1’19 sales stand at 276,162 units. The second quarter sales stand at 130,652 units, which brings revenue of approximately $6.4 billion (assuming $1 = £0.88), a decline of 11% in sales revenue as compared to the previous quarter last year. The sales decrease reflected challenging market conditions in China, where demand had an adverse effect on the supply because of consumer uncertainty. To add to the adverse demand supply effect, the import duty charges and the newly implemented US-China tariffs have pulled down the profits further in the red zone. Consequently, the company had posted negative margins for this division and to weather this volatile external scenario, the company has launched a comprehensive turnaround plan to improve free cash flows and thus profitability. The plan seems to be striking the break-even point by March 2019.

Further, JLR sales were notably weak in Europe in this quarter, with the highest decline seen in Land Rover sales across Europe and China. The company has witnessed a decline of approximately 26% and 25% in its Land Rover sales in H1’19. Land Rover sales were shockingly down 50.6% in September in China. In Europe, sales were down as a result of lower diesel car demand and the introduction of WLTP (Worldwide harmonized Light Vehicle Test Procedure) rules on emissions. JLR’s domestic sales were further falling off by the diesel taxation and regulations, coupled with the uncertainty related to Brexit.

Furthermore, a new production plant has been launched in Slovakia. The company continues to invest in newer technologies as seen in recently launched Jaguar I-PACE and E-PACE. The company has set a target to deliver cost and cash outflow improvements of $2.85 billion over the next 6 quarters. Investment spending came in at $1.14 billion for this quarter.

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Research

Like our charts? Explore example interactive dashboards and create your own.